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China’s factory activity returned to contraction in August after expanding for three consecutive months with power shortages and fresh COVID-19 flare-ups disrupted demand and production, a private sector survey showed on Thursday.
The Caixin/Markit manufacturing purchasing managers’ index (PMI) fell to 49.5 in August from 50.4 in the previous month, missing analysts’ expectation for 50.2.
The reading came after the official PMI released earlier stood at 49.4 in August, remaining below the 50-point mark that separates growth from contraction, though picking up from 49 in the prior month.
“The economy is still slowly recovering from a widespread outbreak of COVID-19 in the first half of the year. Yet, local flare-ups and the punishing heatwave have disrupted the trend and created new downward pressures, posing a threat to the recovery,” said Wang Zhe, senior economist at Caixin Insight Group.
The manufacturing sector’s supply continued to expand, but demand got back to the contractionary territory. The sub-index for production remained in expansion in August for the third consecutive month, but at a slower pace, according to the survey.
Surveyed companies that power rationing due to high temperature and production suspension constrained production.
The sub-indexes for new orders and new export orders slipped into contraction in August after expanding for two consecutive months. Surveyed companies said that high-temperature weather, the tight power supply, resurgent Covid outbreaks and worsening global economy has dampened domestic and overseas demand.
Manufacturers cut jobs for the fifth straight month to reduce costs, adding to worries about the weak labour market which are weighing heavily on consumption and consumer confidence. They also cut back on purchases of materials due to fewer new orders.
One bright spot was a modest drop in input prices, ending 26 months of increases that have sharply squeezed profit margins.